Report: Michigan firms that got millions in grants fell way short of new jobs they promised

Sep. 24, 2013

Written by

Detroit Free Press Lansing Bureau

LANSING — The Michigan Economic Development Corp. gave the Legislature inflated data about the number of jobs resulting from a program that awards tens of millions of dollars in grants to energy-related companies, according to an audit released Tuesday.

The MEDC, which manages the Centers of Energy Excellence grant program for the Michigan Strategic Fund, told lawmakers April 1 that eight companies that received grants created 75% of the jobs they promised.

In fact, those companies — not counting numbers provided by one that went bankrupt — reported creating only 19% of the promised jobs, said the report by Michigan Auditor General Thomas McTavish.

The MEDC never told lawmakers one of the grant recipients went bankrupt in October 2012, meaning all of its job claims should have been tossed out, the report said. The MEDC also never verified the other company’s job creation claims, meaning even the 19% success rate in promised job creation may be overstated.

The report said the state agency attributed the inflated jobs report to “an oversight” in reporting on the grant program, part of the 21st Century Jobs Trust Fund.

Michael Finney, CEO of the MEDC, issued a statement saying he agrees with and will implement recommendations from the auditor to prevent the same problem from happening again.

The MEDC “is committed to transparency and takes very seriously our responsibility to keep citizens informed about programs and incentives supported by their tax dollars,” Finney said.

But Rep. Jon Switalski, D-Warren, said the audit reveals “a breach of the public trust.”

“The MEDC and governor’s office are taking credit for jobs they never created, and lying about ones that never existed,” Switalski said in a news release. “This is an abuse of taxpayer dollars. It’s just another failed corporate giveaway that has done nothing to bring jobs to Michigan and put our people back to work.”

Sara Wurfel, a spokeswoman for Gov. Rick Snyder, said Snyder takes job numbers seriously and under him the state only issues numbers for direct jobs created by a company, not indirect jobs as used by previous administrations.

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“The MEDC is taking ownership and actively taking steps to address moving forward,” she said of the administration’s response to the audit.

Sen. Bert Johnson, D-Highland Park, said the report is “very disappointing.” He called on Snyder and Finney to invite him and other Democrats to the table to talk about policies the state needs to create jobs.

The fund’s failure to update its report to lawmakers with information it knew about, combined with its failure to verify job creation numbers reported by the companies that received the grants, “may have negatively impacted the Legislature’s ability to correctly evaluate program results,” the audit said.

Under the Centers of Energy Excellence program, one of eight programs the auditor reviewed that requires annual reporting to the Legislature, the Michigan Strategic Fund had distributed about $64 million in grants to 12 companies as of March 31, the report said. The recipients promised to create about 1,746 jobs.

The auditor only looked at grants to eight of the companies, those which were completed prior to the annual report required by the Legislature April 1.

The MEDC used jobs data the companies provided on Sept. 30, 2012. But it “could not provide any documentation or support demonstrating that (it) verified the reported information to ensure that the data was correctly reported in the legislative report,” the audit said.

One grant recipient reported in September 2012 that it had created 12% more jobs than it originally promised. The fund provided those numbers to the Legislature in April. In fact, that company went bankrupt last October and was sold to another supplier in January — information the Legislature did not receive.

The company that went bankrupt is not named in the report, but state officials confirmed it is A123 Systems, the lithium-ion battery company that opened plants in Romulus and Livonia.

“We determined that the completed grants, excluding the bankrupt company, met only 19% of the original jobs projection,” based on unverified self-reporting by those companies, the report said.

Finney said the agency supports legislation that would consolidate 12 required annual reports into one.

“This will greatly assist the MEDC in producing a more complete and understandable legislative report on these programs,” he said.